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Barring a further slide in the greenback, we expect USD/SGD’s downside to be limited to around 1.2780. Per our model, the SGD NEER has already risen from the mid-point to near the ceiling of its policy band over the past 1-2 months, consistent with Singapore’s stronger-than-expected GDP growth and signs that inflation may have bottomed. The Ministry of Trade and Industry (MTI) revised up 3Q25 GDP growth from 2.9% YoY to 4.2% and reported a further growth acceleration to 5.7% in 4Q25. CPI inflation rose alongside growth and rebounded to 1.2% YoY in October-November after slowing to an average of 0.6% in 3Q25.
However, we caution against some market expectations that the Monetary Authority of Singapore (MAS) will tighten its SGD NEER policy at this month’s monetary policy review. Despite the growth rebound in 2H25, MTI maintained its 2026 GDP growth forecast at 1-3%, which the MAS expected would narrow the positive output gap to around 0% this year. In his 2026 New Year message, Prime Minister Lawrence Wong cautioned that sustaining 2025’s strong pace of growth will be challenging amid a more fragmented global economy, deeper geopolitical tensions, and structural shifts in trade and supply chains. He stressed that Singapore “cannot simply do more of the same” and must rethink, reset, and refresh its economic strategies to remain competitive. A mid-term report for the Economic Strategy Review (launched in Aug 2025) is expected around the Budget 2006 announcement scheduled for February 12. The review aims to push annual GDP growth toward the higher end of the projected 2-3% range for the next decade, with potential peaks of 4% in strong years.
On Monday, we cautioned that exchange rates are likely to be mixed than trending in January. The USD’s December sell-off was driven by monetary policy divergences in the futures/OIS markets, i.e., more Fed cuts vs. rate hikes in some Developed Market economies in 2026. However, markets also expected all central banks to stand pat at their first policy meeting this year. Until US President Donald Trump nominates a Fed Chair to succeed Powell, economic data will likely be in the driver’s seat, raising questions about asymmetric interest rate movements across countries.
For example, on Monday, weaker-than-expected US ISM data reversed the USD’s haven appeal, driven by the Trump administration’s intervention in Venezuela’s domestic politics. However, the DXY rebounded by 0.3% to 98.58 on Tuesday. EUR/USD tanked from the session’s high of 1.1743 to 1.1687 after Germany’s December CPI inflation fell below 2% again to 1.8% YoY from 2.3% in November. Today’s Eurozone CPI inflation will be closely watched for signs of Euro-Area disinflation resuming. AUD/USD’s rally stalled at 0.6740 following this morning’s lower-than-expected decline in Australia CPI inflation. During the US session, the US ADP Employment report and ISM Services employment may surprise on the upside, challenging the weak US labour market narrative that has been weighing on the greenback.
We remain mindful of the tight relationship between USD/SGD and the DXY Index, reflecting Singapore’s status as a price-taker economy. Our view remains that USD/SGD will trade in a 1.25-1.30 range in 2026, consistent with our forecast for the DXY to trade in a 95-100 range. The USD’s downside risks for 2026 remain intact, as markets brace for a potentially more dovish Fed Chair nominee under Trump, reigniting concerns over Fed independence.
Quote of the Day
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William Arthur Ward
January 7 in history
Brunei became the sixth member of ASEAN in 1984.
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Related Insights
- Implications of the Venezuela Conflict 08 Jan 2026
- Research Library08 Jan 2026
- Macro Insights Portal, DEER: Credibility risks for the overvalued USD 08 Jan 2026
Related Insights
- Implications of the Venezuela Conflict 08 Jan 2026
- Research Library08 Jan 2026
- Macro Insights Portal, DEER: Credibility risks for the overvalued USD 08 Jan 2026